According to Yahoo News, fixed income markets have recently recovered from their rout, and a strategist believes more upside may be ahead. The Federal Reserve's rate hikes are likely done, which should eliminate the biggest headwind for bond investors. Lawrence Gillum, chief fixed income strategist for LPL Financial, laid out four reasons for optimism in fixed income heading into the new year.
First, the end of the Federal Reserve's rate-hiking campaign should eliminate the biggest headwind to fixed income markets. Second, the asymmetric risk-return profile for bonds, largely due to the higher 'yield cushion' that can offset higher interest rates, is a positive factor. Third, bond investors could see equity-like returns without equity-like risks. LPL Financial holds a base case for the 10-year Treasury to hover at 4.25%-4.75%, but a sustained drop in yields could lead to high single-digit or low double-digit returns in the next 12 months for fixed income investments. Lastly, the present fixed-income landscape will open the door for income-oriented investors to generate income again, without having to 'reach for yield' by taking on a lot of risk to meet their income needs.
